1、Cost And Management Accounting in the Peoples Republic of China I . Executive Summary This report is the result of a study undertaken by the Institute of Management Accountants ( IMA ) to examine cost management practices and costing methodologies in the Peoples Republic of China . CONCLUSIONS The a
2、doption of the 2006 Accounting System for Business Enterprises ( ASBEs ) by the Peoples Republic of China brings around substantial convergence of Chinese accounting standards with International Financial Reporting Standards ( IFRSs ). With regard to internal reporting , costing issues can arise for
3、m differences between Chinese and Western companies in the types of costs treated as product costs , and differences in allocating these costs to products in an appropriate manner . There are a number of cost items that have been inappropriately treated in the past per Chinese accounting regulations
4、 ； changes made by the 2006 Accounting System for Business Enterprises have begun to address these . Most Chinese companies follow traditional methods for allocating costs to products , although the use of more accurate costing techniques is emerging . This state of costing practice is similar to th
5、at encountered in the West . Improvement in practice should be based on a cost/benefit analysis performed on an individual company basis . While differences exist between the costing practices of Chinese companies and those used by Western companies , a convergence of practice is in process . Produc
6、t cost is the most important factor in determining product pricing . Other factors , especially competitor pricing, are also very important . It cannot be concluded that differences in costing practices lead to product dumping. II . Study Background OBJECTIVES This report is the result of a study un
7、dertaken by the Institute of Management Accountants . The objectives of the study included the following : 1 . A comparison of international and Chinese accounting policies , procedures , and methods ； 2 . An examination of both the regulations companies follow as well as the actual practices they u
8、ndertake ； and . 3 . An evaluation of the extent to which Chinese cost management systems are influenced by open market economy practices versus more planned economy practices . One motivation for this study was to determine whether Chinese costing practices contribute to product dumping by Chinese
9、companies . In order for this to be the case, several conditions would need to exist . These include the following : Product costs are a major factor in the determination of product selling prices by Chinese companies ； The costing practices used by Chinese companies are such that product costs are
10、not accurately determined ( we note that the term accuracy is relative ； it can be determined relative to Chinese regulations , prevalent Western practices , or basic cost accounting principles ) ； and . The means by which pricing decisions are reached is such that distortion of product costs will r
11、esult in the determination of selling prices that are materially different than those that would have been determined had accurate costs been used . Proving the existence ( or lack thereof ) of all of these conditions is not an easy task. In this study, therefore , we : Explore the importance of pro
12、duct costs in Chinese firms pricing decisions ； Examine the costing practices currently employed by Chinese companies and compare these to the various standards indicated above ； Discuss the evolution of Chinese accounting regulations and their impact on costing practices ； and . Reach , to the exte
13、nt possible , a conclusion regarding the impact of Chinese costing practices on product costing . In order to accomplish these objectives , the Institute of Management Accountants conducted a research study in two phases . In the first phase , an Institute of Management Accountants research team vis
14、ited a variety of Chinese enterprises . This team consisted of : Dr.Raef Lawson , Institute of Management Accountants Director of Research and Professor-in-Residence ； Professor Yang Jiliang , Hong Kong University of Science and Technology(retired) ； Mr. Ding Pinzhun , Institute of Management Accoun
15、tants Senior China Advisor , formerly of the Peoples Republic of China Ministry of Finance and Secretary-General of the Chinese Institute of Certified Public Accountants (CICPAs) ； and Professor Gary Biddle , formerly Chair Professor Hong Kong University of Science and Technology ； now Dean , Facult
16、y of Business and Economics , University of Hong Kong . The firms visited included : State-owned and privately-owned enterprises , Large and middle-sized enterprises , and Enterprises from a diverse set of industries, including those subject to dumping disputes . The firm visits provided a wealth of
17、 information regarding the cost management practices used by the firms visited, and additionally provided the basis for the development and refinement of a mail survey instrument examining costing practices utilized by a much larger sample of Chinese companies . PEOPLES REPUBLIC OF CHINA ACCOUNTING
18、PRACTICES Following the establishment of the Peoples Republic of China in 1949 , the Chinese government developed several management systems necessary under a planned economy . The three most important tasks in this regard were : developing the economic accountability system , which defined the econ
19、omic relationship between the state and the enterprise ； implementing a comprehensive annual planning system , including the cost planning/budgeting system ； and establishing the norm management system for realizing the techno-economic targets of an enterprise . Part of this infrastructure involved
20、the requirement that companies follow a uniform accounting system that was designed by the Accounting Regulatory ( or Affairs ) Department of the Ministry of Finance ( MOF ) . Because of the difference between planned and market economies , Chinese accounting standards employed under the planned eco
21、nomy were largely unsuitable for managing companies in the evolving market environment . As a result , the Peoples Republic of China adopted the Accounting Low and the Accounting Law for Joint Ventures in 1985. ( The Accounting Law 1985 was amended in 1993 and 1999 .) The MOF promulgated its first a
22、ccounting standard , the Basic Accounting Standard , in 1992 , effective July 1993 . This standard , based on International Accounting Standards , provided a conceptual framework and set out accounting principles . This was followed by additional standards . The Basic Accounting Standard changed the
23、 valuation of inventory in a variety of ways . Some administrative expenses ( such as interest expense related to the financing of fixed assets , gains or losses from foreign currency transactions/translations , and inventory carrying costs ) that were previously capitalized as inventory costs were
24、now required to be expensed ( Hilmy , 1999 , pp . 501 - 2 ). Other changes in the distinction between period and product costs are described below . The Accounting System for Business Enterprises were applicable to joint stock limited enterprises effective 1 january 2001 and Foreign Investment Enter
25、prises effective 1 january 2002 . On 15 February 2006, the Ministry of Finance ( MOF ) announced that it had adopted a new Basic Standard and 38 new Chinese Accounting Standards ( CASs ) that were substantially in line with International Financial Reporting Standards (IFRS) . The MOF required all li
26、sted companies to start using the new CASs in the preparation of their 2007 annual financial statements . Additionally, use of the new CASs will be expanded to all state-owned enterprises controlled by the Chinese central government starting in 2008 , and then to all large and medium-sized companies
27、 in China starting in 2009 . Adoption of the new Standards makes financial reporting by Peoples Republic of China companies more in line with international standards, although differences will remain, based on local needs . ( For example , for pure state-controlled enterprises there will be no discl
28、osure requirement for related-party transactions .) The Peoples Republic of Chinas former accounting practices still affect practice to this day. For example , Chinese enterprises traditionally put all the production and service workshops at the second layer of the company , rather than grouping the
29、m under the Manufacturing Department. At the second layer , parallel to factories/workshops , were all the functional departments , both production-related and non-production related . Since transitioning to a market economy in 1979 , marketing has become an increasingly important functional deparme
30、nt , but the organizational structure of almost all Chinese enterprises remains the same: all functional departments are at the second layer , parallel to factories/workshops . Before china started adapting its accounting systems to international/western accounting conventions in 1992 , all overhead
31、 incurred by factories/workshop was included in Workshop Expenses . Expenses incurred by all functional departments ( including those engaged in purchase , engineering , quality control , product designing , accounting , personnel , and sales activities ) were all grouped under Administrative Expens
32、es . Both workshop and administrative expenses were considered as costs and allocated to product . In chinas 1992 Accounting Reforms , Chinese policy-makers changed the traditional term of Workshop Expenses to the Western term Manufacturing Expenses , and treated Administrative Expenses as Period Ex
33、penses , to be excluded from Product Costs . Under Western costing conventions , Manufacturing Overhead includes expenses incurred by the production-related functional departments , whereas Workshop Expenses ( now known as Manufacturing Overhead ) did not include these expenses . The difference in d
34、efinition between Workshop Expenses in China and Manufacturing Expenses in the West can lead to a discrepancy in the measurement of product costs . This difference illustrates one of the challenges in determining the costs of products manufactured by Chinese companies . Other issues are explored bel
35、ow . ISSUES WITH RESPECT TO DUMPING One of the purposes of this study is to compare international and Chinese accounting policies , procedures , and methods in light of the current anti-dumping environment . Legislation in both the EU and U.S. Prohibit the dumping of foreign goods in the domestic ma
36、rket . For example the U.S.s 1921 Antidumping act authorizes compensating duties when imports are sold at less than normal value and are a cause of ( or threaten ) material injury to the U.S. Industry producing products like those that are imported . The dumping duty is based on the difference betwe
37、en the normal value of the product and the price charged for it in the United States . Normal value is based on prices in the home market, or, if there are insufficient sales of comparable merchandise in that market, the foreign producers price on sales to third countries . If all home market ( or the third country ) sales are below cost , normal value is based on the cost of production plus profit .
